50% hit thanks to buy downs, rate sites

by Donald Horne26 Jun 2013

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50% hit thanks to buy downs, rate sites

The success and popularity of rate sites are forcing brokers to buy down rates, squeezing bps until there is almost nothing left, says one broker, who estimates he has lost an estimated 50 per cent of his potential revenue.

“Rate sites are predisposing the client to look for the lowest rate,” says Christopher Molder, a broker with The Mortgage Centre – Tridac Corporation and blogger on his website sonofabroker.com. “It doesn’t matter what your volume is, because it eats into your revenue stream.”

The pressure to buy down rates has probably cost Molder about half of his potential revenue, he estimates, despite maintaining the same volume as in previous years.

“When you are left with only 50 bps after a buy down, that’s not money in your pocket,” he told MortgageBrokerNews.ca. “There are still a lot of other people looking to be paid after that.”

Molder – who doesn’t want to be painted as just another broker out to badmouth rate sites – only wants to draw attention to the need for the industry to focus more on engaging the client.

“The rate sites are good at what they do, and I get some great referrals from them,” he told MortgageBrokerNews.ca. “Studies show 40 per cent of people are self-educating themselves and starting their search online. That is why we as brokers need to leverage that same social media, provide value-added products and explain mortgage debt reduction to the client.

“The ground is shifting in the industry,” he adds, “and we have to embrace a new modus operandi.”

Still, there is danger of the brokering profession being reduced to just a commodity, he points out.

“We need to maintain that level of professionalism as brokers,” says Molder, suggesting that brokers need to draw a line in the sand on commission. “For those ‘A’ type clients, it really does come down to rate. They can walk into any bank and set their own terms. I’ve observed that we are in danger of becoming just a commodity.”

I am biased but I think this is the new normal. It's not just rate sites. RBC, TD road reps, CIBC branches and retention centres are knocking rates down to rock bottom every day. Mortgage rates are a commoditizer's dream, huge ticket items and the rates themselves are super simple to understand and advertise. I did not say the mortgage was easy to understand, I said the rate was.

Bottom line is, I think this business will look a lot different in 3 years, maybe just 2 years. There will always be a successful full service mortgage broker but things will never be exactly like they were again.

Christopher, the new modus operandi I am embracing, and I encourage everyone else to embrace is www.MortgageResource.ca. There is so much more to talk about than rate, no?

It's about using social media (blogs, video, podcasts) to educate the consumer, and at the same time, promote yourself as the local expert. Collectively we can change the focus away from rate to much more important subjects. This is one way to help solidify our position as professionals.

Lets work together to keep our industry headed in the right direction.